If I’ve learned one thing about working with a lot of design professionals over the past decade, it is that many of them– too many– are just plain too nice. That’s right, too nice. They send polite letters of proposal to the client, and then begin work on a handshake deal. Or, they willingly sign on to the Owner’s contract without pushing to negotiate more favorable, mutually beneficial contract terms. Under the maxim that “no good deed goes unpunished,” sometimes such clients are giving away their copyright ownership without being appropriately compensated.

Unscrupulous, or at least naive, owners sometimes believe that because they paid for design documents, they own them and can use them for any purpose. This, of course, is *usually* not true. However, sometimes the owner agreement states that the designer’s work product is created as a “work for hire” or otherwise provide that the owner has an unlimited ability to use the work product regardless of the circumstances. Such clauses should either be removed altogether or negotiated up front, with appropriately compensation being provided for such copyright ownership.

If you are working under a letter proposal, it should at least include language indicating that the design team maintains ownership rights in the design documents. Further, you should make explicit that the owner has no right to continue to use design documents in the event the owner terminates your contract unless and until full payment for such documents is given to the design team. Even better would be a requirement that the owner indemnify the design team from any unauthorized use of the design documents. (Hey, a girl can dream, can’t she?).

Most importantly, realize that without the built-in protections of the standard agreements, it will be much more difficult to enforce your copyright ownership in your plans & drawings. For a few moments extra work on the front end tweaking your letter proposals or negotiating your owner contract, you can save countless hours of heartache on the back-end.

Do you have standard copyright ownership language in your non-form construction contract? Ever had to fight copyright issues with the owner? Share in the comments below. And, if you have not already done so, sign up for direct email delivery of blog posts right to your in-box.

Which standard form contract provides “better” protection for copyright issues- ConsensusDOCS or AIA? The ever-so-hepful “it depends” is, as usual, the answer.

Are you the owner looking to use the plans you paid for even after you terminate an architect, or are you the architect looking to protect your work product? If you are the owner, you will probably prefer ConsensusDOCS. If you are the architect, your best bet is still the AIA documents.

Consider the following:

Under ConsensusDOCS 240,

the Owner receives ownership (except copyrights) of all documents, drawings, and data prepared by the architect or consultants for the Project, upon final payment for all sums due in the event of termination (Article 10.1).

the Owner has the option of being granted copyright ownership, contingent on making all payments required, including a stated copyright fee. (Article 10.1.1).

whether termination is for convience or for cause by either party, the Owner can use the documents to complete the project, provided he pays all sums due (Article 10.1.2).

the Owner agrees to indemnify the architect for post-construction use of documents. (Article 10.1.3).

Under AIA B101,

the architect and consultants are the owners of their respective instruments of service, retaining all rights, including copyrights (Article 7.2).

the Owner is granted a non-exclusive license in the instruments of service, soley for use in constructing, using, maintaining, altering and adding to the Project, provided the owner substantially performs, inclduing making prompt payments of all sums due (Article 7.3).

if the Owner does not pay all sums due, if the architect terminates the contract for cause, or if the Owner does not pay an extra fee after a termination for convenience, the Owner’s non-exclusive license terminates. (Article 7.3; Article 11.9).

the Owner must indemnify the architect against third party claims arising from the owner’s unauthorized use of documents. (Article 7.3.1).

if the Owner properly terminates the architect for cause, there is no indemnity against third party claims and no release of the architect from the owner’s claims arising from the use of the docuemnts (Article 7.3.1).

Do you have experience in managing copyright issues under either contract? Which do you prefer? Leave your thoughts in the comments section, below.

The presentation will highlight challenging contract clauses and approachs to evaluating, negotiating, and managing those clauses. Among the clauses which will be discussed are those relating to indemnity, the standard of care, code compliance, and document ownership.

The seminar is sponsored by Hall & Company and presented by attorney David Ericksen, President of Severson & Werson.

Are you being asked to sign contracts that are prepared by the Owner? If so, do you have a policy in place to have each such contract, Master Agreement, or Statement of Work be reviewed by your attorney? You should. An ounce of caution is worth a pound of cure, as they say.

One of the most important contract terms to review in any contract is the indemnity provision. I’ve discussed how indemnity provisions work in the past. If you haven’t already read that post- do it now. (Go ahead, I’ll wait).

Today, I want to address indemnity in the context of non-form contracts presented to you by an Owner for execution. Generally these are presented with no expected negotiation on your part. Remember, however, that everything can be negotiated. A few small changes up front can save you lots of time and expense later if there is ever a lawsuit.

Because these contracts are drafted by the Owner (or, rather, his horribly biased zealous attorney), they tend to be overreaching and broad. Recent contracts I have reviewed ask the architect to indemnify the owner for the design team’s negligence, “regardless of whether or not other parties are also negligent.” That phrase is very troubling, and should be stricken. Otherwise, the Owner will have an argument that because the design team was negligent, they must indemnify the Owner for all negligent acts (other than the Owner’s own negligence), including those by other parties.

A better, proportional indemnification provision should include indemnification “to the extent the claim is found to be caused by the negligence of the design team.” (Even better, of course, would be a limitation of liability based on your design fees, but I recognize that it is often impossible to negotiate such a limitation with some blood-sucking sophisticated Owners.)

Do you have comments about indemnity provisions in contracts you have been asked to sign? Drop me a note in the comment section, below.

Today’s Guest Post is by J. Kent Holland, a construction lawyer located in Tysons Corner, Virginia, with a national practice representing design professionals, contractors and project owners. He is also founder & president of ConstructionRisk, LLC, a consulting firm providing consulting services to owners, design professionals, contractors and attorneys on construction projects. His guest post is very timely, considering last week’s post on insurance check-ups for your business.

Agreeing to Pay Reasonable Attorneys Fees as Part of Indemnification May Create Uninsurable Loss

A question that is asked with increasing frequency is whether attorneys fees incurred pursuant to an indemnity clause are insurable where they are not incurred due to a duty to defend (i.e., paid on behalf of the indemnitee) but are instead paid after the litigation is complete and the indemnitor (e.g., engineer) is found liable for damages due to its negligence. The short answer is that unless the court would have awarded the attorneys fees against the engineer in the absence of the contractual obligation to pay attorneys that was created by the indemnification provision, the attorneys fees will not be covered by the professional liability policy. The contractual liability exclusion of the policy applies to such contractually created attorneys fees obligation.

A typical indemnification clause that includes payment of attorneys fees as part of indemnification rather than as part of a duty to defend is the following:

INDEMNIFICATION

The Consultant shall indemnify and hold harmless Owner, its parent, affiliates and their respective directors, officers and employees (“Indemnitees”) from and against any and all claims, suits, actions, judgments, demands, losses, costs, liability, damages, and expenses, of any kind (including reasonable attorneys fees) for injuries to persons (including but not limited to death) or damage to property to the extent any of the foregoing are caused by any negligent act, error, or omission of Consultant, its officers, employees, agents, representatives, and persons for whom Consultant is legally responsible in the performance of the Services.

Although this clause may look innocuous in that the indemnification is limited to negligence, it may nevertheless create uninsurable loss by virtue of the attorneys fees that are included in the indemnification. Under American Jurisprudence, the courts do not award attorneys fees to the prevailing party unless the contract creates such a duty or unless there is some legal basis such as a civil statute that would establish the basis for the award of attorneys fees.

An insurance broker was recently asked by his client (an engineering firm) to consider the insurance ramifications of an indemnification clause somewhat similar to what was quoted above. Instead of containing the reference to reasonable attorneys fee within its text, however, the clause included an additional sentence that stated: “Consultant shall not have an obligation to defend any person under this indemnity; however, Subconsultant shall have liability for reasonable and necessary defense costs incurred by persons indemnified to the extent caused by Subconsultant’s negligence.”

* * * * * *

To avoid contractual liability for legal fees under the above-quoted clause that would not be covered by insurance, the broker recommended that the final sentence be revised to read as follows: “Consultant shall have liability for reasonable and necessary defense cost incurred by persons indemnified to the extent caused by Consultant’s negligence herein and recoverable under applicable law on account of negligence.”

I agree with the broker that, unless the award is limited to the sum “recoverable under applicable law on account of negligence,” the indemnity of legal costs is not fully insured. Specifically, an award of legal costs in favor of the indemnitee against the engineer that is based on the contractual indemnity alone is excluded from coverage by the contractual liability exclusion of the policy. The amount of the award that is made under applicable law respecting recovery of plaintiff’s legal costs, apart from the contractual indemnity, could be covered under the policy depending upon terms and conditions of the policy.

In other words, if a state has a law for recovery of plaintiff’s legal costs against the engineer, an award under that law based upon negligence might be covered under the professional liability policy, but any part of an award of attorneys fees that results only from a contractual indemnity obligation to indemnify a plaintiff’s legal fees will run afoul of the contractual liability exclusion of the policy and, therefore, be excluded from coverage.

As previously stated, in the United States, the laws of the individual states do not provide, routinely, for an award of plaintiff’s legal costs. That is the genesis of contractual indemnity of legal costs. Contractual indemnity “fills in” what the law does not otherwise order. Likewise, that is the reason the engineer would limit the contractual indemnity to the sum that state law would award. The “fill in” to enforce the contractual indemnity is not a liability that would have attached to the “insured” in the absence of such contract, warranty, guaranty or promise, to quote from the contractual liability exclusion contained in one insurance carrier’s policy. For the reasons explained in this article, a party that agrees to indemnify another should beware that agreeing to reimburse the indemnitee for attorneys fees will likely create an uninsurable risk where those fees would not have been awarded by a court in the absence of the contractual obligation.